Price Discrimination or Cost Differential?

A month or two ago, Marvel Comics raised the prices of its more popular comic books [h/t Brian Ferguson]:

During the presentation, Turitzin gave an overview of Marvel — a “cash machine,” he called it — and the various ways it makes money, from publishing and licensing to the more recently added Marvel Studios division. Like I said on Friday, one of the more interesting portions came when a comic fan in the audience asked about recent cost increases on some of Marvel’s more popular titles from $2.99 to $3.99.

“We’re always testing our pricing on our comic books to see to the extent to which it is inelastic, and we can increase our profit in that business,” Turitzin said. He added that different books have different price points, noting the most popular titles saw a price increase, while the lower-selling monthlies, as well as the comics aimed at kids, did not.

“We’re just looking to maximize our profits for that business while not alienating our own fan base by making them feel that they’re gouged, which I hope you don’t feel,” he told the fan.

That sounds as if it meets the general conditions required for price discrimination, doesn't it?

• Different market segments with different price elasticities of demand
• Costly or no opportunities for arbitrage (buying low and selling high) because you cannot easily buy one of the cheaper comic books and then resell it as one of the expensive ones.

But hold on.
Is it possible there are cost differences giving rise to the price differentials? What if, in order to keep the better talent working on the better comics, the company must pay more to the writers and illustrators who produce the ideas and artwork of the more popular comics? What if those people have higher opportunity costs in the video, computer graphics, and video game industries? If so, then maybe these price differentials are determined, at least in part, by cost differentials.

As quoted in the same item,

“Comics are a legit form of entertainment, and there are highly respected and well-paid individuals creating them,” he said. “People have an affinity for nickel and dime comics from the 1940s, but we’re competing with video games, film and television.” He added, “We need to keep the talent on the books to make them work.”

But we teach our students that profit-maximizing prices are determined by the intersection of marginal cost and marginal revenue. The price-discrimination argument (at least in its simplest form) assumes that the marginal costs and marginal revenues in the different segments are equivalent, and the only difference giving rise to the price differences is in the price elasticities of demand in the two different segments.

Are there really differences in long-run marginal costs in the different segments of the comic book industry? Doesn't it cost the same to produce an additional comic book regardless of its content?

Maybe the short-run marginal costs are the same for producing comic books. In fact, given the different lengths of the runs and the setup costs, maybe the costs of production are lower at the margin for the more popular comics.

At the same time, though, to keep the top talent producing those popular comics probably adds to the long-run marginal costs of producing them.

The upshot is twofold:

1. It is often not so easy to identify price discrimination in the real world. John Lott is an expert on the economics of price discrimination (see his comment here, for example); and
2. Price searchers don't have marginal cost and marginal revenue curves to work with. Price searching in the real world is usually a process of successive approximations and adjustments.